Kyrish Certified Public Accountants
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Homeowner Associations (HOA’s)

HOA’s in California are also known as Common Interest Realty Associations (CIRA). HOA’s are regulated by the State of California via Davis-Stirling Act. Since the Davis-Stirling Act went into effect in 1986, the laws affecting HOA’s have been actively changing, every year. The legislature adds new provisions to the Act and/or modifies existing ones.

HOA’s membership organization is formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development. This organization should demonstrate that it is operated for the benefit of all the residents of the community. The association should substantiate that areas such as roadways and park land the association owns and maintains are open to the general public and not just its own members, and that it does not engage in exterior maintenance of private homes.

Few requirements to be fullfilled by HOA’s

  • Review of the association’s operating and reserve accounts as well as income and expense statement on quarterly basis.

  • Review the current year’s actual reserve revenues and expenses compared to the current year’s budget on a quarterly basis.

  • Prepare annual budget and distribute to unit owners.

  • A reserve study of the long-term replacement costs must be prepared every three years.

  • Disclose summary of association’s insurance to unit owners annually.

Prepare and File Taxes

Preparing your own business tax return, can be frustrating and time consuming. At Kyrish CPA we have the right expertise to help you prepare your business tax returns. In addition you will have year round access to us to help you will any and all your tax questions.

Business taxes often require tax preparation to occur quarterly, not just once a year. In order to go about your business tax preparation properly, you will need to be diligent about keeping accurate records. You will be required to provide information such as your Federal Tax ID number, the date your business was incorporated, and your businesses income and/or losses for the year. If applicable, the number of shareholders in your company and the size of each shareholder’s ownership stake are important figures as well.

HOA’s are exempt organizations at the same time they are required to file tax returns. Tax return forms commonly used for HOA’s

  • Federal Tax Forms
    Form 1120 - 15% tax rate
    Form 1120H - 30% tax rate

  • California State Tax Return Form
    Form 100 - 8.84% tax rate
    Form 199 - for gross receipts exceeding $25,000 (filing fee $10)

Audits Reviews and Compilations

Audits - Highest level of assurance

An audit includes a review of internal controls, testing of selected transactions, and communication with third parties. Based on findings, a report is issued whether the financial statements are fairly stated and free of material misstatements.

A highest level of assurance is obtained because third party confirmations are typically sent to:

  • Attorneys, for information on pending or threatened legal action

  • Banks, to confirm cash, investment, debt balances and interest terms

  • Customers, to confirm outstanding receivable balances

  • Vendors, to verify outstanding payable balances

Physical inspections are also done at the end of the accounting period by observing inventory and performing test counts. Audit papers include a detailed work program to document the examinations and testing performed, as well as the client’s supporting work papers. Audits are more expensive than reviews and compilations, are discretionary by the board unless called for in the association’s CC&Rs or Bylaws.

Review - Limited level of assurance

A review engagement consists primarily of analytical procedures that are applied to the financial statements, and various inquiries that are made of the organization’s management team. If the financial statements or supporting information appear inconsistent or otherwise questionable, additional procedures may be performed.

Limited level of assurance is obtained because a review doesn’t require studying and evaluating the company’s internal controls or verifying data with third parties or physically inspecting assets.

Compilation - Lowest level of assurance

A compilation engagement compiles information provided by the management and expresses no opinion or assurance on the statements. Compilations do not require inquiries of management or analytical procedures.

Audit Vs Review

The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not contemplate obtaining an understanding of the internal control structure or assess control risk, tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation, and certain other procedures ordinarily performed during an audit. A review may bring to the accountant’s attention significant matters affecting the financial statements, but it does not provide assurance that the accountant will become aware of all significant matters that would be disclosed in an audit.

Obtaining State Exemption Status

To receive tax-exempt status in California, the organization files one of the following with the Franchise Tax Board (FTB):

  • FTB 3500, Exemption Application.
    FTB 3500A, Submission of Exemption Request.

Responding to IRS Notices

We reply to any IRS notices associated to HOA’s.

Consultation Services

We prepare presentations, set up procedures and engagements etc. for Board of Directors.

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